AMAC, the self-regulatory body that oversees private funds, said the new rules were intended to further protect investors’ legal rights and to regulate the private fund management industry, described by some insiders as a “Wild East” rife with fraud.

The government has adopted a range of measures to clean up unqualified funds, online financial investment platforms and privately run exchanges.

The new rules, which will officially take effect in July, require fund managers to fully disclose their investment risks, review the identities of investors, and set up special accounts to manage capital.

Regulators will also step up supervision and punish fund managers who fail to comply.

Private fund registrations more than doubled in 2015 to reach more than 25,000, according to AMAC data.

While many “phantom” funds may have done nothing illegal, the AMAC licence, a legal requirement for operating a hedge fund, has often been used as cover for fraudulent peer-to-peer lending platforms, industry insiders say. Some fraudsters also raise money upfront for bogus funds that are never launched.